Towards the Future of Retail


It is the end of the season and we all know what that means: time for SALE! Whether we like it or not, many of us are drawn to the shops with the biggest red letters on the window screaming about how they reduced their prices of some of their products to even 70 %… However, shopping during sale periods if often not the most pleasurable time to hit the shops.

As a resort many of us shift to online shopping where products are perfectly displayed on beautiful models and you don’t have to dodge elbows from fellow shoppers while diving into a pile of shirts. Nonetheless, this might not be a perfect customer experience either, as our perfectly displayed dress in the web shop is often disillusioned and the real product leaves us disappointed upon arrival.

Now I hear you wonder… how can we solve these problems and create a better customer retail experience? Do not worry; the answer is radio-frequency identification (RFID). RFID is a technology used to read and/or save information of RFID-tag labelled products such as paper tags. The technology was first discovered in 1945 and has been patented in 1983 by Charles Walton (Barcoding, n.d.). Opposed to traditional barcode techniques, each RFID-tag is uniquely identifiable and can store more specified information for the tagged product. Ever since, the technology has experienced extensive development and is currently used in many industries ranging from security, to advertisement, and mobility to live-stock. In retail environments we for example have already seen RFID-tags to protect valuable products in our local drugstore from being stolen.

As the technology has been growing over time, the price of a simple RFID-tag has been reduced to 10 cents (Barcoding Inc., n.d.). Now that might seem very cheap, however, when all products in a store need to be labelled this will add up to quite a substantial amount of money. So what exactly are the benefits of using these RFID-tags in your favourite retail store?

Example of an RFID tag used to label products.

Security Benefits
For all shoplifters among us, this might be rather a downside than a benefit. With RFIS-tag labelled products, the security systems of stores can be significantly improved to better the customer experience. Normally, when you walk into a shop, you are welcomed by security gates with which shops are essentially saying: Feel free to check out our product, but be careful, we know you might steal!. New technologies using RFID-scanners are able to operate more precisely and therefore capable of scanning products from a bigger distance in a more distinct area. This allows for the development of overhead scanners at the entrance of shop that are nearly invisible for the customer (Nedap Retail, 2019b). Furthermore, the labels will contain more information about the products they are attached to and while checking out information about the sales status can immediately be updated (Nedap Retail, 2019b). Therefore, less security details such as pins need to be added as the label itself can signal immediately if it is being stolen. Lastly, once certain products are identified to be stolen more often, increased security measures can be taken such as giving the product a more prominent display in the store or adding traditional prevention measures such as colour bombs and security pins (Nedap Retail, 2019b). The difference is that this will now only need to be used for products that are frequently stolen rather than every product that shows increased value.  

Example of overhead scanner at the shop entrance.

Recommendation in fitting room
Another benefit comes in the fitting room. With the uniquely identifiable labels, shops might in the future be able to build recommendation systems based on what products customers bring to their fitting room and decide not to buy (GDR, 2019). Once data is more incorporated within the business, shops can create a system in which customers create a profile that collects information about what the customers likes (GDR, 2019). This may start with online browsing behaviour, but can be extended to the fitting room where items can be scanned, and customers can indicate what they liked or did not like. Based on the input information, the system can give recommendations on products with for example a similar colour or a different fit if the customer indicated the product did not fit well. With this, the customer will receive better in shop recommendations without having to scan every shelf in the shop for different yet similar products. In a fully integrated supply chain where shop attendants are able to get the items for the customers once requested through the system, even more efforts for the customer are saved. This becomes especially interesting with the increased development of virtual fitting rooms where products can be tried without putting them on (GDR, 2019).

Example of a virtual fitting room with product recommendations in different colours.

Less stocking and stock-outs
As more date is being tracked on which items are exactly in the store, in the storage and being bought, less items need to be stocked-up within the shopping area. With the exact information which items are being sold in which sizes and of which colours, the personnel can instantly restore the items on display to the optimal level (Bianchi, 2017). This reduces the number of items that need to be displayed and allows for tidier stopping environment, especially during sales seasons. This becomes increasingly easy as the storage of the shop can be scanned quicker as well. With the RFID technology, items can be scanned through their packaging and while they are still in the box on the shelf. Therefore, it reduces time needed to find certain products while they are stored and makes it easier to replenish store displays (Nedap Retail, 2019a). Once more clarity on stock is being reached, more information can be displayed in the online environment as well where information about the current availability of the product in a specific store is displayed and regularly updated. This not only increases informativeness for customers, but the real-time updating of stock levels also lowers the chance of stock-outs when adequately used to organise the supply chain (Nedap Retail, 2019a).

Example of replenishment system working with an application for shop attendants.

All in all, a relatively simple technology such as RFID combined with a sophisticated cloud is capable of changing the retail customer experience. Storing more information in the cloud allows for a friendlier shopping environment that invites people to enter stores and creates clear overview of the products on display. Furthermore, it can compliment the online experience by creating real-time storage updates and improved recommendations both in store as well as online once products are linked to personal accounts. Therefore, the ultimate resort might no longer be just online shopping, as shops will remain tidy and we know what to expect in stores, even during the super sale times.

Barcoding, Inc. (n.d.). RFID FAQs – Barcoding, Inc.. [online] Available at: https://www.barcoding.com/resources/frequently-asked-questions-faq/rfid-faqs/ [Accessed 9 Mar. 2019].

Bianchi, J. (2017). 5 Examples of Innovative Uses for RFID Technology in Retail. [online] Shopify. Available at: https://www.shopify.com/retail/5-examples-of-innovative-uses-for-rfid-technology-in-retail [Accessed 28 Jun. 2017].

GDR. (2019). The changing face of the fitting room – GDR. [online] Available at: http://gdruk.com/changing-face-fitting-room/ [Accessed 9 Mar. 2019].

Nedap Retail. (2019). !D Cloud – Cloud-hosted RFID software – Nedap Retail. [online] Available at: https://www.nedap-retail.com/solutions/id-cloud/ [Accessed 9 Mar. 2019].

Nedap Retail. (2019). iD Top – RFID-based EAS overhead – Nedap Retail. [online] Available at: https://www.nedap-retail.com/solutions/idtop/ [Accessed 9 Mar. 2019].

How to optimize revenues in the sharing economy


What are we talking about?

Over the past decade, online peer-to-peer platforms such as Airbnb or Uber have become some of the most prominent upbringings of the sharing economy. But what is the sharing economy? Defining the concept is quite difficult, but one may define it as “the use of technology to facilitate the exchanged access of goods or services between two or more parties” (Miller, 2018). It is fast-rising and highly popular, with 44.8 million adults in the US using the sharing economy in 2016, and 86.5 million US users expected in 2021 (Miller, 2018).

So, how can those of the 44.8 million adults in the US using the sharing economy who provide services and products make the most out of this economy? The authors of the presented research intend to answer this question.

Abrate and Viglia (2019) argue that the success of products offered on online peer-to-peer platforms is influenced by the personal reputation of the seller, which is often indicated by the sellers’ credentials. This personal reputation increases the quality of the relationship of those involved in the peer-to-peer platform and reduces uncertainty in the transaction. However, the authors argue that to date there limited research available regarding revenue optimization and personal reputation, instead of product reputation. Thus, the authors intend to close this gap in research by disclosing the effects of both personal and product reputation on revenue optimization in the sharing economy.

According to the authors, there are five main concepts involved in the revenue optimization of products and services in the sharing economy. These five concepts are:

  • Shared assets, which refers the product’s physical and service characteristics
  • Product reputation, which refers to online reviews shaping consumers’ perception of a product
  • Personal reputation, which refers to the expertise of the seller
  • Potential revenues, which refers to the revenues which could objectively be achieved from a product or service
  • Achieved revenues, which refers to the actual revenues achieved from a product or service

Based on their literature review, the authors propose the following theoretical framework:

The authors test whether product and personal reputation reduce the gap between potential and achieved revenues and whether personal reputation has a stronger effect on reducing this gap.

How is it measured?

In order to test these hypotheses, the authors make use of data from Airbnb. On Airbnb, hosts can list their accommodations and rent these to guests. Here, the shared assets are the listings and their characteristics, which constrain the maximum revenues a host can achieve. The potential revenues thus depend on factors such as location and number of bedrooms. While the host tries to maximize his revenues, achieved revenues often do not match the potential revenues.

The authors take a stochastic approach to test the hypotheses and build two regression models. Without going into more detail regarding the regression model in this blog post, the authors aim at explaining the difference in potential revenues and achieved revenues with these models. They argue that the difference can be explained by reputational variables in that good reputation allows the host to outperform other hosts and thereby close the gap between potential and achieved revenues. If the host’s reputation is bad, on the other hand, the gap between potential revenues and achieved revenues increases. For both personal and product reputation, this is reflected in the regression models built by the authors.

The researchers then gathered data from the five most popular European destinations, which are Barcelona, Istanbul, London, Paris and Rome. From these cities, the researchers identified all Airbnb listings within a 2-kilometer distance from what general tourism websites determined as the main attractions of these cities. Further, the researchers set a cap at 200 listings per city.

For these listings, the researchers retrieved information on prices, availability, characteristics of the listing and reputational attributes. Personal reputation has been measured in days since registration, profile completeness and the “superhost” qualification, which is awarded by Airbnb to hosts when certain reputation requirements are satisfied. Furthermore, product reputation has been measured by professional photos of the listing and online reviews, in terms of volume and average review score.

After validating the listings, the authors were left with a sample size of 981 listings. The authors then applied their regression models.

What are the results?

The researchers found support for all three hypotheses, meaning that both product and personal reputation reduce the gap between potential and achieved revenues, but that personal reputation has a stronger effect in reducing the gap.

What can we learn from this?

The results of this research have important implications for both scholars, and managers and practitioners. For scholars, this research bridges the gap in existing literature regarding revenue optimization in the sharing economy, which has previously mostly focused on product reputation. This research also offers insights into the importance of personal reputation, stand-alone and compared to product reputation.

For managers and practitioners, this research offers statistical proof as to how to optimize revenues in the sharing economy, especially in the case of Airbnb. Hosts on Airbnb can use these insights to take measures to increase both their product and personal reputation in order to increase their revenues. Through better personal branding and building trust, hosts can increase their personal reputation and thereby reduce uncertainty in the transaction which leads to higher achieved revenues.

Finally, what are the strengths and weaknesses of this paper?

One of the strengths of this paper is that it offers a statistical approach to revenue optimization in the sharing economy. Through regression modeling based on real data from Airbnb, the authors prove the importance of both product and personal reputation.

A weakness of this paper, however, is that reputation, which is a key variable in this research, is difficult to measure. The researchers themselves acknowledge that reputation is very subjective and may not be adequately captured in this research. In future research, this issue should be tackled, possibly by validating the indicators used for assessing reputation in this study by having guests confirm or reject the host’s product and personal reputation .

Sources:

Abrate, G. & Viglia, G. (2019). Personal or Product Reputation? Optimizing Revenues in the Sharing Economy. Journal of Travel Research, 58(1), 136-148.

Miller, D. (2018). What Is The Sharing Economy (and How Is It Changing Industries)? Retrieved on March 9, 2019 from https://www.thebalancesmb.com/the-sharing-economy-and-how-it-changes-industries-4172234

L’Oréal’s use of virtual reality to increase customer engagement


Virtual reality is today a widespread, but still quite novel phenomenon. You have probably heard of VR in the gaming industry, as in the VR headsets. Moreover, VR is being used in healthcare, as in virtual reality diagnostics and virtual reality robotics. Similarly, VR can be used on the work floor, in the military, in sports, education and film. However, increasingly, companies are exploiting VR opportunities to engage their customers. L’Oréal is one of them.

L’Oréal’s Virtual Reality efforts

Recently, L’Oréal acquired Modiface, which is a beauty tech company which uses virtual reality to create augmented reality apps and AR mirrors (Moon, 2018). Next to L’Oréal, Modiface has created apps for Benefit, Sephora and Bixby Vision. By using the Modiface app, people can superimpose beauty products on their face and hair, using an uploaded selfie. As e-commerce is driving the beauty industry nowadays, L’Oréal hopes that once people stop buying their beauty products in brick-and-mortar stores, they will turn to L’Oréal’s VR app, and so, L’Oréal’s own products (Duan, 2018).

Next to acquiring Modiface, L’Oréal is collaborating with Facebook’s augmented reality platform (Lucio, 2018). By using this platform, customers will be able to try out all sorts of make-up by using Facebook’s AR camera. This could become one of L’Oréal’s smartest move, as for L’Oréal, social media networks have become the biggest growth driver of web sales in terms of attracting shopping traffic (Rayome, 2018).

“We are at that magical moment when technologies have matured enough and consumer appetite for using them is growing everywhere. We are very excited about that new step in our long-term partnership with Facebook. One fascinating aspect of this partnership is that it keeps us innovating the beauty user experience.” – Lubomira Rochet, 2018, L’Oréal Chief Digital Office

Efficiency criteria

Buying make-up or trying on a new hair color is not an easy decision. Especially because L’Oréal’s products -which also include many high-end beauty brands, e.g. Lancôme– are quite pricey and therefore not an everyday routine decision. L’Oréal capitalizes on the customer’s desire for knowledge by offering their customers detailed information online, using AR technology. Moreover, by offering live stream make-up tutorials with make-up experts, L’Oréal tries to educate its customers. As such, L’Oréal tries to eliminate product uncertainty and make their customers feel confident and happy about their purchase.

In today’s digital age, customers do not only except detailed product information, but customers are also very sensitive to personalization. More specifically, customers value personalized product recommendations (until a certain extent) (Bleier & Eisenbeiss, 2015). Not only will this lead to better sales, but maybe more importantly, to higher customer loyalty. L’Oréal is playing on this personalization aspect by offering customers’ personalized product recommendations. As such, L’Oréal makes use of content-filtering by the use of cookies and device identification for its personalized advertising on its website. Moreover, it has a skin care consultation tool where customers can get personalized recommendations regarding their skin care routine. Next, L’Oréal is partnering up with different AR technology start-ups to enhance its personalized product recommendations, such as Veleza and InsitU (Forbes, 2017).

However, another important aspect of customer engagement is customer entertainment. AR can help beauty brands entertain customers by including a sense of fun into searching for beauty products. For example, for Cannes Film Festival’s 20th anniversary, L’Oréal used its AR app to entertain users with 64 film-inspired, AR-powered make-up looks (Pezzini, 2018). This way, people could experience the red carpet feeling from home, and interact with L’Oréal’s beauty products. Moreover, by using the Genius make-up app, customers can try on hundreds of make-up looks without the need to actually try on or acquire the products, which may open a world of imagination and wonder, at least for some of us. As a large part of L’Oréal’s customers is still buying its products in-store (Jung, 2018), L’Oréal is not only experimenting with VR online, but also offline. For example, in China, L’Oréal has installed multiple “magic mirrors” in its stores. By looking into a real mirror, people can try on different make-up looks and order those products directly via their Genius app (Hsu, 2017).

Recommendations

Although customers are still taking baby steps regarding the use of virtual reality in the beauty sector, I definitely see a great success story in L’Oréal’s VR efforts. However, the development of the virtual reality apps and platform are just not enough. In order to sustain long-term customer engagement and retention, L’Oréal will need to make some more efforts. One such effort is building a strong community around its virtual reality activities. L’Oréal is on the right way of doing so. As aforementioned, L’Oréal recently acquired Veleza, which is start-up app-based community of beauty lovers which help members find products that match their personal needs. Moreover, people can give each other feedback and rate/review beauty products. However, by using the already established Veleza platform, L’Oréal is outsourcing its community establishment. This inquires an easy set-up and by doing so, it can acquire already existing members from Veleza, which is beneficial. However, this leads to a lower impact on their own brand and L’Oréal may have lower flexibility regarding design (Tsekouras, 2019). Therefore, I would recommend to L’Oréal to establish their own online community. This will not only enhance their brand, but it also directly relates to only their beauty products. To conclude, L’Oréal has the means and expertise to develop its own online community around a strong digital VR strategy, which could definitely lead to an even higher brand awareness and customer loyalty. 

References

Digitising warrantees


We’ve all experienced it – that dreaded moment when a new appliance suddenly stops working. And rather than giving you comfort, the idea that it is still under warranty gives your stomach muscles a twist. Where is the receipt – is it in the trusty old box labelled “receipts & other stuff” in the study; or in the pile of to-be-filed papers collecting on the dining-room table?  And if you are lucky enough to find it, will it be readable or has the ink melted away into the thermal paper.

In this post, I evaluate the concept and technology being developed by a team of South African entrepreneurs to digitise warrantees. By further unlocking the use of block-chain technology (Van Rooyen, 2017), key role players in the day-to-day transaction cycle will be connected to streamline the warranty and warranty-claims processes and eliminate the need for paper-based warrantees. 

What is a digital warranty?

The concept is for manufacturers to create product information, which include the warranty parameters, in an Ethereum  blockchain at the point of manufacture. Retailers will augment this information in the chain with the sales information when the item is sold to the consumer, thereby creating the warranty information. The consumer will then use an app to add their details to the chain which completes the digitised warranty.

How would it work?

Figure 1: Product and warranty information created by manufacturer

Figure 1 shows how a manufacturer would create its finished goods in the chain, including product information (for example, make, model, serial number, etc) and the warranty parameters (for example, term/period, type of warranty – repair only, replace only, repair or replace, service only). The manufacturer will also record when the item is sold to a retailer or distributor to allow for the tracking of items (weather it is in transit, on-floor or with the consumer).

An additional feature for manufacturers would be product placement in the app, once the consumer has completed the steps illustrated in Figure 2 below, using code from one of the readily available open-source recommendation agents. For example, a customer that registers a new 50″ TV can be sent a notification, or shown in the app, what other customers bought in addition to the TV – for example, a sound-bar. Also, on expiry of a client’s warranty, manufacturers can push replacement products to consumers or give the consumer the option of buying an extended warranty.

Figure 2: Digital warrantees from a retailer and consumer perspective

Figure 2 illustrates the process flow once the consumer has purchased the product which, in most cases, is when the warranty is activated. Participating retailers will add a QR code to the printed receipt which the consumer will scan with their smartphones, directing them to the digital warranty app. It is anticipated that large contracted-in retailers will require only a unique code from the customer – their warranty wallet number – to have the purchase sent to their digital warranty wallet, eliminating the need for a printed receipt altogether. Registering on the app can be done through an email & password combination or using an existing social media account. A broadly similar workflow, with different interfaces, will exist for consumers that want to register and manage their warrantees online instead of on the app. Once registered, they can add new warrantees, create an asset register or manage their warrantees – for example, take out extended warrantees – directly on the app or online. Opt-in notifications will send consumers an alert when an item’s warranty is about to expire and offer extended warrantees where these are available as well as advertisements from manufacturers.

Most importantly, because the information in the chain is immutable, consumers no longer need a physical receipt and any claim they make against the warranty will automatically be validated through the entry in the chain. By placing the customer at the centre, various add-on services can be created to manage the claim process on behalf of the manufacturer – for example, courier services to move items to and from the service centre or providing loan items for critical appliances.

Why would people use this?

For the consumer

  • Easy access: Purchase information is stored in one place, making it easy to reference and access when needed in a fast and efficient manner. 
  • Durability: Unlike paper receipts that are often printed on thermal paper, a record created in a blockchain is immutable and permanent. 
  • Acceptance: The decentralised nature of blockchain technology means that the warranty is automatically validated in the chain in the event the consumer needs to make a claim. 
  • Free storage: e-slips eliminates the needfor space-consuming and complex filing systems.   
  • Information security: Personal information is stored only once in the app rather than with multiple retailers, which reduces it’s susceptibility to malicious or accidental disclosure. 

For the wholesaler or manufacturer and the retailer

  • Customer loyalty:  Completing forms, collecting data and hard copy documents are a thing of the past which is likely to improve brand loyalty & increased repeat sales. 
  • Reduction in fraudulent claims: As the authenticity of the warranty is no longer paper-based and dependent on human error, it is expected that the cost of fraudulent claims will reduce. Claims for “fake” or counterfeit products will no longer be an issue as the manufacturer or retailer can track the chain of custody of each product.
  • Increased sales: Product placement and recommendations within the app or making extended warrantees available can generate revenue.
  • Cost reduction: Efficiency in the sales and warranty claims process. Printing and printer maintenance cost will reduce.
  • Reduced carbon footprint: Consumers respond positively and reward retailers with loyalty when the retailer demonstrates awareness of and a reduction in its carbon footprint.

What are the challenges and how will the entrepeneurs respond?

  • Monetising the service: The reality is that, whilst consumers may crave the simplicity of the service, not many will be willing to pay for it. Revenue streams would need to come from manufacturers and retailers who may not see the immediate benefit to them. Emphasis should, therefore, be on creating the ability to track inventory through the entire value chain, quick validation of warrantees when claims are made and increased sales from product placements. An additional consideration is to let consumers experience the service and then implement a pay-as-you-want pricing model for people to contribute toward the service.
  • Scale of the ecosystem: There are many role-players in the value chain which complicates negotiations and, due to the highly competitive nature of the consumer goods market, open discussions are tricky to navigate. Seeking out an advisory board for the initiative that is credible in the retail sector and can offer good connections is imperative, as is an experienced negotiator.
  • Lack of trust leading to low uptake: Whilst consumers, retailers and manufacturers would all appreciate the convenience, online trust is a subjective emotion that is hard to establish for new providers. This is especially the case where a recommendation agent recommend additional products, sponsored by the manufacturer, to consumers. All sponsorships will be disclosed in addition to comments as to why the specific product is being displayed. The choice of initial partners – retailers and manufacturers – is crucial to creating trust and credibility for the service. In addition, electronic word-of-mouth references from retail-industry influencers/stalwarts will increase adoption.
  • Funding: Like all start-ups, the team are looking at different funding options for their business. One of these options is crowdfunding to see if that attracts a suitable investment without having to give up too much of the company’s equity.

Conclusion

The portability of the information collected through this process to other organisations – like short-term insurers and financial institutions – and the actual service to other industries – like motor-vehicle warrantees – are wide-reaching. Whilst there are many and seemingly sizeable challenges to overcome, the benefits throughout the entire value chain and the rather simplistic technical solution to realise these benefits, makes this a no-brainer.

The team of entrepreneurs in South Africa are excited to deal with the challenges and are confident that the various role-players will come together, putting the consumer at the centre, to make this possible. Look out for your electronic warrantee coming soon.

References

Kulkarni, A. (2018). What else could blockchain be used for? Quora. Retrieved from https://www.quora.com/What-else-could-blockchain-technology-be-used-for/answer/Ajit-Kulkarni-4 on 22 February 2019.

Van Rooyen, J. (2017). Real-world applications of blockchain-enabled supply chains. Resolve SP. Retrieved from http://pressoffice.itweb.co.za/resolvesp/PressRelease.php?StoryID=275840 on 22 February 2019.